India Bets on Rains to Cool Prices as Monsoon Arrives Early

A normal monsoon for a second year in 2011 may prompt the government to ease a four-year ban on exports of wheat and rice and unrestricted shipments of sugar. Photographer: Pankaj Nangia/Bloomberg

May 30 (Bloomberg) -- India’s monsoon, which brings more
than 70 percent of the country’s rainfall, landed two days early,
potentially boosting production of rice and sugar and helping
cool the highest inflation among Asia’s major economies.

The rains reached southern Kerala and Tamil Nadu and are
likely to advance to the rest of Kerala and the state of
Karnataka in the next two to three days, said the India
Meteorological Department in a statement today. The bureau
predicted May 13 that showers would reach Kerala tomorrow.

Abundant rains may boost rice, corn, sugar, cotton and
oilseed harvests, helping growth and curbing inflation in a
country where farming represents a fifth of the economy. Bumper
crops may prompt the government to ease export curbs, capping
global food costs the United Nations says reached a record in
February. Some 235 million farmers depend on the rains to boost
incomes and fund purchases of tractors, cars and televisions.

“This year’s monsoon is even more important because there
are worries about the economy slowing down” as a result of
policy tightening, said Sonal Varma, a Mumbai-based economist at
Nomura Holdings Inc. “Given the risks of inflation, the last
thing we need is a bad monsoon and food prices spurting.”

Finance Minister Pranab Mukherjee is betting on normal
rains to tame food price gains after they averaged 18 percent in
2010. The Reserve Bank of India boosted benchmark interest rates
on May 3 for the ninth time in 15 months and said inflation will
remain at an “elevated level” until at least September.

Highest After Russia

Inflation in India is the highest after Russia among the
so-called BRIC economies. Rising borrowing costs will slow
economic growth this year and help ease inflation to 6 percent
“with an upward bias” by March 31, 2012, Governor Duvvuri
Subbarao said.

“The progress of the south-west monsoon is likely to play
a critical role in shaping growth and inflation expectations,”
Siddhartha Sanyal, a Mumbai-based analyst at Barclays Capital,
wrote in a note to clients on May 24.

India’s economy may expand “around 8 percent” in the year
through March from 8.6 percent in the previous 12 months, the
central bank estimated. Economic growth has averaged 8.6 percent
in the past six years.

The government may say tomorrow the economy will expand 8.1
percent in the three months ended March 31, according to the
median of 16 estimates in a Bloomberg survey. Inflation in India,
the world’s second-most populous nation, remained above 8
percent for a 16th month in April.

Export Ban

The country imported record quantities of sugar, lentils
and oilseeds in 2009 following the weakest monsoon since 1972. A
normal monsoon for a second year in 2011 may prompt the
government to ease a four-year ban on exports of wheat and rice
and unrestricted shipments of sugar.

The country banned shipments of wheat in early 2007 and
non-basmati rice in April 2008 to bolster domestic supplies.
State reserves of rice and wheat totaled 59.3 million tons on
May 1, more than double the quantity five years ago, according
to the Food Corp. of India.

A favorable monsoon may boost the nation’s share market as
motorcycle, car, television and food companies seek to increase
their sales in rural areas.

The S&P CNX Nifty Index on the National Stock Exchange of
India Ltd. may rally to 5,500 on good rains, Suresh Babu Pyarla,
a derivatives strategist at Axis Securities & Sales Ltd, a unit
of India’s third-biggest non-state lender, said on May 27.

“The market will look to the rain gods for direction,” he
said in an interview. “The monsoon will be a key factor for
stocks in the near term.”

The rains may be 98 percent of the 50-year average this
year, the weather bureau said on April 19. The monsoon typically
sets over the southern Kerala state by the first week of June,
before blanketing the entire nation by July 15.